Two income statements for Cornea Company follow:Prepare a vertical analysis of Cornea Company’s income statements

Two income statements for Cornea Company follow:

Cornea Company Income Statements For Years Ended December 31 2019 2018 Fees earned . . . . . . . . . . . . . . . . . . . . . $1,640,000 $1,300,000 Operating expenses . . . . . . . . . . . . .      869,200    715,000 Operating income . . . . . . . . . . . . . . . $   770,800 $  585,000

a. Prepare a vertical analysis of Cornea Company’s income statements. 

b.  Does the vertical analysis indicate a favorable or an unfavorable trend?

Answer:

CORNEA COMPANY 

Income Statements

For Years Ended December 31

a.

Fees earned $1,640,000 100% $1,300,000 100%

Operating expenses 869,200 53% 715,000 55%

Operating income $ 770,800 47% $ 585,000 45%

b. A favorable trend of decreasing operating expenses and increasing operating 

income is indicated.

Two income statements for Hemlock Company follow:Prepare a vertical analysis of Hemlock Company’s income statements.

Two income statements for Hemlock Company follow:

Hemlock Company Income Statements For Years Ended December 31 2019 2018 Fees earned . . . . . . . . . . . . . . . . . . . . . . $725,000 $615,000 Operating expenses . . . . . . . . . . . . . .   435,000   356,700 Operating income . . . . . . . . . . . . . . . . $290,000 $258,300

a. Prepare a vertical analysis of Hemlock Company’s income statements.

b.  Does the vertical analysis indicate a favorable or an unfavorable trend?

Answer:

HEMLOCK COMPANY

Income Statements

For Years Ended December 31

a.

Fees earned $725,000 100% $615,000 100%

Operating expenses 435,000 60% 356,700 58%

Operating income $290,000 40% $258,300 42%

b. An unfavorable trend of increasing operating expenses and decreasing operating income is indicated.

For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal.

For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much.

a. The adjustment for accrued wages of $5,200 was journalized as a debit to Wages Expense for $5,200 and a credit to Accounts Payable for $5,200.

b. The entry for $1,125 of supplies used during the period was journalized as a debit to Supplies Expense of $1,125 and a credit to Supplies of $1,152.

Answer:

a. The totals are equal even though the credit should have been to Wages Payable instead of Accounts Payable.

b. The totals are unequal. The credit total is higher by $27 ($1,152 – $1,125).

For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal

For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much.

a. The adjustment of $9,800 for accrued fees earned was journalized as a debit to Accounts Receivable for $9,800 and a credit to Fees Earned for $8,900.

b. The adjustment of depreciation of $3,600 was omitted from the end-of-period adjusting entries.

Answer:

a. The totals are unequal. The debit total is higher by $900 ($9,800 – $8,900).

b. The totals are equal because the adjusting entry was omitted.

The estimated amount of depreciation on equipment for the current year is $6,880.

The estimated amount of depreciation on equipment for the current year is $6,880. 

Journalize the adjusting entry (include an explanation) to record the depreciation.

Answer:

Depreciation Expense 6,880

              Accumulated Depreciation—Equipment 6,880

               Depreciation on equipment.

For the year ending April 30, Urology Medical Services Co. mistakenly omitted adjusting entries for (1) $1,400 of supplies

For the year ending April 30, Urology Medical Services Co. mistakenly omitted adjusting entries for (1) $1,400 of supplies that were used, (2) unearned revenue of $6,600 that was earned, and (3) insurance of $9,000 that expired. Indicate the effect of the errors on (a) revenues, (b) expenses, and (c) net income for the year ended April 30.

Answer:

a. Revenues were understated by $6,600.

b. Expenses were understated by $10,400 ($1,400 + $9,000).

c. Net income was overstated by $3,800 ($10,400 – $6,600).

For the year ending August 31, Mammalia Medical Co. mistakenly omitted adjusting entries for (1) depreciation of $5,800

For the year ending August 31, Mammalia Medical Co. mistakenly omitted adjusting entries for (1) depreciation of $5,800, (2) fees earned that were not billed of $44,500, and (3) accrued wages of $7,300. Indicate the effect of the errors on (a) revenues, (b) expenses, and (c) net income for the year ended August 31.

Answer:

a. Revenues were understated by $44,500.

b. Expenses were understated by $13,100 ($5,800 + $7,300).

c. Net income was understated by $31,400 ($44,500 – $13,100).

The balance in the unearned fees account, before adjustment at the end of the year, is $272,500

The balance in the unearned fees account, before adjustment at the end of the year, is $272,500. Journalize the adjusting entry (include an explanation) required if the amount of unearned fees at the end of the year is $189,750.

Answer:

Dec. 31 Unearned Fees 82,750

                      Fees Earned 82,750

                       Fees earned ($272,500 – $189,750).

The prepaid insurance account had a beginning balance of $4,500 and was debited for $16,600 of premiums paid

The prepaid insurance account had a beginning balance of $4,500 and was debited for $16,600 of premiums paid during the year. Journalize the adjusting entry (include an explanation) required at the end of the year, assuming the amount of unexpired insurance related to future periods is $5,600.

Answer:

Insurance Expense 15,500

                Prepaid Insurance 15,500

                 Insurance expired ($4,500 + $16,600 – $5,600).

The supplies account had a beginning balance of $3,375 and was debited for $6,450 for supplies purchased during the year.

The supplies account had a beginning balance of $3,375 and was debited for $6,450 for supplies purchased during the year. Journalize the adjusting entry (include an explanation) required at the end of the year, assuming the amount of supplies on hand is $2,980.

Answer:

Supplies Expense 6,845

                 Supplies 6,845

                  Supplies used ($3,375 + $6,450 – $2,980).

The estimated amount of depreciation on equipment for the current year is $7,700. Journalize the adjusting entry

The estimated amount of depreciation on equipment for the current year is $7,700. 

Journalize the adjusting entry (include an explanation) to record the depreciation.

Answer:

Depreciation Expense 7,700

                  Accumulated Depreciation—Equipment 7,700

                   Depreciation on equipment.

Prospect Realty Co. pays weekly salaries of $27,600 for a six-day workweek (Monday thru Saturday)

Prospect Realty Co. pays weekly salaries of $27,600 for a six-day workweek (Monday thru Saturday). Journalize the necessary adjusting entry (include an explanation) assuming that the accounting period ends on Friday. 

Answer:

Salaries Expense 23,000

             Salaries Payable 23,000

               Accrued salaries [($27,600 ÷ 6 days) × 5 days].

We-Sell Realty Co. pays weekly salaries of $11,800 on Friday for a five-day workweek ending on that day

We-Sell Realty Co. pays weekly salaries of $11,800 on Friday for a five-day workweek ending on that day. Journalize the necessary adjusting entry (include an explanation) assuming that the accounting period ends on Wednesday.

Answer:

Salaries Expense 7,080

            Salaries Payable 7,080

              Accrued salaries [($11,800 ÷ 5 days) × 3 days].

On June 1, 2019, Herbal Co. received $18,900 for the rent of land for 12 months

On June 1, 2019, Herbal Co. received $18,900 for the rent of land for 12 months. Journalize the adjusting entry (include an explanation) required for unearned rent on December 31, 2019.

Answer:

Dec. 31 Unearned Rent 11,025

                Rent Revenue 11,025

                 Rent earned [($18,900 ÷ 12 months) × 7 months].

At the end of the current year, $17,555 of fees have been earned but have not been billed to clients.

At the end of the current year, $17,555 of fees have been earned but have not been billed to clients. Journalize the adjusting entry (include an explanation) to record the accrued fees.

Answer:

Accounts Receivable 17,555

                Fees Earned 17,555

                 Accrued fees. 

At the end of the current year, $23,570 of fees have been earned but have not been billed to clients

At the end of the current year, $23,570 of fees have been earned but have not been billed to clients. Journalize the adjusting entry (include an explanation) to record the accrued fees.

Answer:

Accounts Receivable 23,570

                  Fees Earned 23,570

                   Accrued fees.

Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry:

Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry:

a. Accumulated Depreciation 

b. Frank Kent, Drawing

c. Land  

d. Salaries Payable

e.  Supplies

f.  Unearned Rent

Answer:

a. Yes

b. No

c. No 

d. Yes

e. Yes

f. Yes

Classify the following items as (1) prepaid expense, (2) unearned revenue, (3) accrued revenue, or (4) accrued expense:

Classify the following items as (1) prepaid expense, (2) unearned revenue, (3) accrued revenue, or (4) accrued expense:

a. Cash received for use of land next month.

b. Fees earned but not received in cash.

c. Wages owed but not yet paid.

d. Supplies on hand.

Answer:

a. (2) Unearned revenue

b. (3) Accrued revenue

c. (4) Accrued expense

d. (1) Prepaid expense

Classify the following items as (1) prepaid expense, (2) unearned revenue, (3) accrued revenue, or (4) accrued expense:

Classify the following items as (1) prepaid expense, (2) unearned revenue, (3) accrued revenue, or (4) accrued expense:

a. Cash received for services not yet rendered. 

b. Insurance paid for the next year.

c. Interest revenue earned but not received.

d. Salaries owed but not yet paid.

Answer:

a. (2) Unearned revenue

b. (1) Prepaid expense

c. (3) Accrued revenue

d. (4) Accrued expense

Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry:

Indicate with a Yes or No whether or not each of the following accounts normally requires an adjusting entry:

a. Building

b. Cash

c. Wages Expense 

d. Miscellaneous Expense

e. Nancy Palmer, Capital

f. Prepaid Insurance

Answer:

a. No 

b. No

c. Yes 

d. No

e. No

f. Yes